Five ways you can find yourself in audit hell for tax time 2016

May 12, 2016 Five ways you can find yourself in audit hell for tax time 2016

The Australian Taxation Office has shared with Fairfax Media the main areas that will spark its attention where people over-claim or incorrectly claim deductions on their tax returns.

1. Repairs and maintenance for yourself rather than your tenant

Assistant Commissioner Adam Kendrick said the biggest mistake with rental property deductions was people claiming repairs and maintenance that were capital in nature.

For instance, they buy rental property that needs renovations, and claim the repairs and maintenance before they rent out the home.

Mr Kendrick said this should not be claimed as a deduction against income on tax returns, but could be claimed in the future as a capital deduction if the property is sold.

At the time of sale the investor will have to pay capital gains tax – then they can claim the capital deduction, he said.

2. Apportioning income to your partner or omitting income

The ATO would also look at couples who claim deductions in the name of the other to pay less tax.

For instance a husband and wife invest in a property 50/50.

But then, when it comes to tax time, the deductions go into the name of the spouse that can get the biggest deduction because of their income level.

Income people earned through occasionally renting their homes or driving cars for sharing economy services such as Airbnb and Uber would also be monitored. The ATO would be cross-checking information with the banks.

3. Pretending you rent out your holiday home

The ATO is also cracking down on holiday home owners that claim properties that are not genuinely available for rent.

Those who are reserving them for private use will once again be targeted.

If the property is used for private purposes for part of the year it cannot be claimed.

If a person rents out to family or friends for part of the year and charges them less than market rent, or excessively above the market rate, the ATO will also take this into account.

4. Car, travel ‘work-expense’ claims that are personal

Another strong focus would be car travel that people claim is work-related but that is really between work and home, and therefore cannot be claimed.

Mr Kendrick reminded taxpayers that this year there were only two methods to make car claims: log book or cents per kilometre.

“We will verify with their employer how much the employee uses the car for work, and whether they travel straight from home,” Mr Kendrick said.

The ATO would also be contacting employers to ascertain whether the worker needs bulky goods to do their job and check whether there was no secure area for their worker to store the goods at their place of employment.

General work-related travel was also under watch. “What we are seeing is that people are making claims for travel allowances, such as meal and expense claims, when people have not travelled overnight,” Mr Kendrick said.

5. Mobile phone, broadband use that’s personal

The other red flag that would alert the ATO’s attention was mobile phone and broadband expenses.

“Apportionment is the biggest issue here,” Mr Kendrick said. “People need to be clear what is for work, and what is personal.”

Many people were claiming 90 per cent work, 10 per cent personal, when in fact most of their usage was for personal reasons.